Monday, June 7, 2010

Brinkley on the Pecora Commission Hearings

It's not often that we link to Vanity Fair, but, then again, it's not often that Vanity Fair has Alan Brinkley (Columbia University). His recent article, titled "When Washington Took on Wall Street," recovers the Pecora Commission Hearings, in which the Senate Committee on Banking and Currency demanded an explanation for the stock market crash of 1929 and ensuing financial crisis. Brinkley describes how special counsel Ferdinand Pecora used his questioning of J. P. Morgan Jr. and other "banksters" to both "tease out information about the bank's internal practices" and "stoke the public's wrath toward the financiers." Brinkley also considers why, despite the obvious parallels to today's series of financial debacles, we have not seen a comparably exhaustive investigation. Here's a paragraph from the article:

The Pecora Commission, as the Senate investigation came to be known, was a spectacular event in the darkest days of the Great Depression. It had a lasting impact on the public’s image of the financial world, and it helped make possible new laws and regulations aimed at preventing a Depression-size calamity from befalling the country again. What few anticipated was how fragile those laws and regulations would eventually prove to be—and how, in time, the tide would turn. The abuses highlighted by the Pecora Commission have clear parallels with the abuses that led to the financial meltdown of the past two years. Where the parallel breaks down is in comparison with the Pecora Commission itself. Congress has been remarkably decorous about investigating what went wrong. No Wall Street executives have been questioned for days at a time by a skilled interrogator. The Obama administration’s financial-reform bill—which would establish new procedures for seizing and dismantling failed banks, and also diminish the prospect of taxpayer-funded bailouts—faces strong, perhaps unanimous, Republican opposition. Even if the bill passes, it would represent a relatively modest response to the existing range of problems. In April, the Securities and Exchange Commission agreed (on a split vote) to file civil charges against Goldman Sachs, alleging that the firm defrauded some of its investors by selling them a portfolio of highly risky mortgage-related securities. The S.E.C. further charged that Goldman did not inform clients that the securities they were purchasing had been selected with the help of an investor who was expecting to profit from their decline in value. So far, the charges do not name any figures in Goldman’s senior management.

UPDATE: I've just learned that Michael Perino (St. John's University School of Law) has been working on a book-length treatment of the Pecora investigation, with a focus on how it changed American finance. The book, titled The Hellhound of Wall Street, will be out this fall.